Hughes Software Systems has done exceedingly well among software stocks of late, largely on institutional buying support.

The stock of the telecom software major has risen by 22.53% to Rs 158.25 on 21 February, from a recent low of Rs 129.15 touched on 27 January 2003. The BSE IT Sector Index has risen by 3.22% and the 30-share BSE Sensex has advanced by 1.83% in the same period.

Average daily volumes on the Hughes Software Systems counter have risen from 732,000 shares to 11.40 crore.

The strength on the HSS counter despite flat-to-modest performance of its peers (Wipro, Infosys Technologies, Satyam Computer, HCL Technologies and Digital GlobalSoft) is largely attributed to the impressive financial performance of the company amid sluggishness in the global telecom industry, to which the company has substantial exposure.

For the third quarter ended 31 December 2002, HSS registered a 21.3% fall in net profit to Rs 11.40 crore. Total income for the quarter declined by 6.2% to Rs 59 crore.

The fall in net profit was in line with expectations. A capitalmarket.com poll had forecast between 21% to 37% fall in HSS's Q3 net profit at Rs 9-11.50 crore. Its net sales were projected in the range of Rs 54 crore and Rs 58.5 crore, a drop of 2.3% to 9.7%.

Despite a fall on year-on-year basis, HSS has posted 37.34% sequential growth in net profit, compared to the September 2002 quarter. In SQ 2002, the company had recorded a net profit of Rs 8.3 crore.

Looking ahead, HSS said its sales may record a 10% sequential growth in Q4 from Q3 ended December 2002. However, the next four quarters will continue to be difficult for the telecom sector, the company added.

HSS derives a significant portion of its revenues from the telecom domain. Meanwhile, there are some signs of improvement in the telecom sector globally, and HSS is likely to be a major beneficiary.

Recently, there were rumours that the US-based General Atlantic Partners was among the funds that had approached HSS for a equity stake in the company. HSS, however, has denied any move on its part to sell equity stake.

As on 31 December 2002, promoters held 55.57% stake in HSS, while the public, institutions and foreign bodies held 15.74%, 3.99% and 13.32 %, respectively.

Last week, HSS announced an alliance with QNX Software Systems to offer integrated solutions in the telecom market. The partnership brings together QNX's technology with HSS' protocol stacks for convergent networks, together offering integrated solutions to the original equipment manufacturers in the telecom space.

In order to de-risk its business and create added opportunities, HSS has decided to enter the business process outsourcing segment. This unit will be started as an independent operation. The company is also diversifying its revenue streams and is working currently for a foray into the banking, financial services, insurance segment.

There have been rumours that the company is at an advanced stage of bagging an order from Lucent Technologies for an outsourcing contract, which is likely to generate revenues of about $10 million over three years.